Thursday Look Ahead: Economic Data, Earnings Back in Focus After FOMC
Elevated jobless claims or a very weak reading on first quarter GDP Thursday could give the markets pause, as investors continue to pick apart the Fed's commitment to its easing policies.
A wave of earnings news also breaks ahead of the stock market open, including such names as ExxonMobil, Procter and Gamble and PepsiCo .
Stocks Wednesday rallied, after the Fed waived on a continued period of easy money policies though acknowledged the end of the $600 billion quantitative easing program will be June, as expected. The Dow was up 95 points to 12,690, and the S&P 500 rose 8 to 1355.
The dollar , as expected, lost ground as the Fed reaffirmed that it expects rates to remain low for an extended period. The dollar fell about a percent against the euro , which was at 1.4794. Gold and silver jumped, as investors bet the Fed's policies would fan inflation, even as Fed Chairman Ben Bernanke said the Fed expects the current pickup in inflation to be temporary.
The bond market, however, showed little reaction. Treasurys fell slightly, and the yield on the 10-year rose to 3.368 percent. "The fact that the market had already rallied, and didn't move on it, is telling," said David Ader, chief Treasury strategist at CRT Capital. "I would say he was duller than dish water, but I think that's the point. I think at the end of the day after Bernanke spoke if the bond market didn't do a thing...he'd say victory, and that's exactly what it did."
First quarter GDP is expected at 8:30 a.m., and many economists now believe it could be below 2 percent but that the decline is temporary. Jobless claims are also reported at 8:30 a.m., and for the past several weeks the weekly claims have been elevated. Pending home sales are released at 10 a.m. The Treasury will also auction $29 billion in 7-year notes at 1 p.m.
"GDP Is kind of dead on arrival, not unlike the FOMC's statement. It's what we know....Claims have been over 400,000 over the last couple of weeks. Was that an anomaly or are we seeing a slowing in the labor market? I think that's going to be a big number for tomorrow," said Ader. "If they stay unchanged at 400,000 that could be a negative, and if they just stayed where they were, something may be brewing."
Nomura Americas Treasury strategist George Goncalves said his expectation is that GDP could come in at 1.8 percent for the first quarter, and he thinks a more sluggish economy will keep a bid in bonds even as the Fed winds down its quantitative easing. Under the QE program, the Fed is purchasing $600 billion in Treasury securities.
Cashin also noted that the Fed members were unanimous in their statement. "After all the table pounding, where were all the hawks?" he said. "Maybe the economy's dicier than we thought." The Fed did downgrade its growth outlook, knocking down 2011 to between 3.1 percent and 3.3 percent from its January forecast of 3.4 percent to 3.9 percent. It also raised its inflation estimate to a range of 2.1 percent to 2.8 percent.
What to Watch
Cashin said the markets will likely focus Thursday on Warren Buffett's Berkshire Hathaway, which released the findings of its board's audit committee on former executive David Sokol's trading in Lubrizol. Berkshire directors on the committee blamed Sokol, saying he misled Buffett and others and violated the company's ethics and insider trading policies. The report was released ahead of Berkshire's annual meeting this weekend.
Other events include NYSE Euronext's 8 a.m. annual meeting, where shareholders are likely to question the agreement to merge with Deutsche Bourse and also the rival bid from Nasdaq and ICE.
Earnings reports Thursday also include Royal Dutch Shell, Sanofi-Aventis, Apache, Borg Warner, CME Group, Bristol-Myers Squibb, Colgate-Palmolive, Dow Chemical, Raytheon, Time Warner Cable, Thomson Reuters and Viacom. Microsoft and Motorola Mobility report after the bell.
Treasury Secretary Tim Geithner speaks in Detroit at 4 p.m. to the Detroit Economic Club.